Supreme Court Concluded that FAA Does Not Permit Class Arbitration

Posted by

AT&T Mobility LLC v. Concepcion, (U.S. Supreme Court, April 27, 2011)

Although arbitration provisions have generally been upheld by the courts, certain clauses have been closely scrutinized.  One such clause is a class-action waiver which requires arbitrations to be conducted on an individual basis.  The Supreme Court has now addressed the propriety of such clauses in arbitration provisions and whether state law can void the clause.

In AT&T Mobility LLC v. Concepcion, customers brought a putative class action suit against a cellular telephone service provider in a federal district court alleging false advertising and fraud.  The provider filed a motion to compel arbitration pursuant to the arbitration provision in its service contract.  The contract precluded class arbitration.  After the federal district court denied the provider’s motion to compel arbitration, the Ninth Circuit federal appellate court affirmed.  The Ninth Circuit found that the arbitration provision was unconscionable under California's Discover Bank rule, which provided that class action waivers in consumer contracts of adhesion were unconscionable in cases where a party with superior bargaining power was alleged to have cheated large numbers of consumers out of individually small sums of money. 

After granting certiorari, the Supreme Court held that the Federal Arbitration Act (FAA) preempted the Discover Bank rule.  Specifically, the Supreme Court held that the savings clause under the FAA did not permit application of the California rule and nothing in the savings clause suggested an intent to preserve state law rules that stood as an obstacle to the accomplishment of the FAA's objectives.  The Court noted that the overarching purpose of the FAA was to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.  Requiring the availability of class arbitration would be inconsistent with the FAA.

For a copy of the decision click here

Bryan Richmond and Sharon Angelino